Government-owned company to take over school payroll

New Zealand's school payroll service
will come under Government management in October of this
year.

After lengthy negotiations, the Ministry of
Education and the existing school payroll provider, Talent2,
have settled both on the amounts payable by Talent2 towards
the costs of remediating the Novopay service and a new
operating model for the school payroll system.

The
new model involves a new government-owned company taking
over the operation of the payroll service, and Talent2
licensing the core Alesco software to that company.

The settlement provides for Talent2 to pay the Ministry
between $18 million and $22 million, made up of $7 million
in cash and other considerations including a license for the
Alesco software and discounted fees for the support and
maintenance of this software. The Ministry also obtains full
ownership of the customisations of the software created for
the Novopay project which is valued by Talent 2 at between
$15 million and $18 million, and which has been funded by
the Ministry through its Novopay contract.

The
settlement amount covers both the contractual changes and
the "day of reckoning" process.

Minister Responsible
for Novopay Steven Joyce says the decision to transfer the
service to a Government-owned company was made by mutual
agreement between the Ministry of Education and Talent2.

“This decision has been made in the best interests of
all parties: staff, administrators, schools, and the
Government,” Mr Joyce says.

“It became the
logical next step towards giving schools a more stable,
sustainable and simple payroll service.

“Considerable effort has been made by both Talent2 and
the Ministry of Education to stabilise and improve the
payroll delivery system since the original issues arising
from ‘Go Live’ in August 2012.

“I’ve been
pleased to note that the payroll has remained within the 0.5
percent acceptable steady state error rate over the past 15
months for all but the three ‘start of year’ payroll
cycles at the beginning of this year.

"However
further changes are required to the system and the service
model to make the system easier to operate for school
administrators. On top of that, keeping the system
performing at its current level under the current operating
model has remained very expensive for both taxpayers and the
payroll provider.

Talent2 was not prepared to
provide the extra resources that are necessary for further
development of the system within the current contractual
arrangements."

Responsibility for payroll processing
and service centre activities will therefore pass to the new
Government-owned company effective from 17 October this
year. That company will also be responsible for the
customisations of the software.

“A key
recommendation of last year’s Ministerial Inquiry into
Novopay was the need for the Ministry to re-examine the
school payroll service delivery model and to re-negotiate
the contract with Talent2 to resolve outstanding contractual
and service issues. That has now been done,” Mr Joyce
says.

Mr Joyce says work will continue on the
substantial improvement programme that’s already underway
including improving the readability of pay slips and Staff
Usage and Expenditure (SUE) reports, and resolving
outstanding leave issues.

“We’ll also be
simplifying the school payroll. The current system requires
two thirds of all teaching and non-teaching support staff
have their details changed every year. This sort of
complexity has caused problems for not one but two pay
systems over the past decade and it’s not sustainable,”
Mr Joyce says.

“In the meantime, current service
levels and staffing will be maintained throughout the
transition with the full support of Talent2. Talent2 will
retain operational responsibility during the transition and
has committed to working closely with the Ministry to make
the transfer as smooth as possible.

“These changes
are a very important next step in completing the work to
remediate the school payroll. They will lead to a high
quality sustainable payroll operation.”

Questions and Answers

1. Why are you making these
changes?

These changes clear the way to
improving the current service model for Novopay. They also
deal with two outstanding issues in relation to the
remediation of the Novopay service. These are:

• the re-negotiation of the payroll service contract
between the Ministry and Talent2 which was recommended by
last year’s Ministerial Inquiry• the “day of
reckoning” process, which settles the liability issues for
the additional costs incurred for the remediation of the
Novopay service

They are the next stage in
delivering schools a more stable and sustainable payroll
service which is easier for administrators to operate.

2. Why make more changes now? Isn't
Novopay operating a lot better?Yes, Novopay has
been operating a lot better. The payroll has remained within
the 0.5 per cent acceptable steady state error level for all
payrolls over the last fifteen months except for the three
‘start-of-year’ payrolls at the beginning of this
year.However some issues remain, in particular in
relation to the complexity of the service centre model and
the ‘start-of-year’ process. There are also outstanding
issues around leave balances. The timing of the change
is as a result of contract re-negotiations between Talent2
and the Ministry of Education. Those talks came out of a key
recommendation of the Ministerial Inquiry into Novopay that
called for the contract to be re-examined to resolve
outstanding contractual and service issues.

3. What further changes need to be made to the
system?The actual system is
relatively stable now. The payroll has remained within the
0.5 per cent acceptable steady state error rate for all but
the three ‘start of year’ payroll cycles over the past
15 months.

The key change is to the service model to
provide better service desk support for administrators and
better access to education payroll expertise. We are also
in the process of simplifying payslips and some key
reports.

Further work needs to be done to further
automate the “start-of-year” process and ensure leave
balances are recorded and updated automatically.

General simplification of the payroll is also a top
priority. The current system that requires two thirds of all
teaching and non-teaching support staff to have their
details changed every year is too complex. The Ministerial
Inquiry recommended we simplify this. Once that’s achieved
we’ll have a more sustainable and user-friendly
service.

It is envisaged that the new structure will
be better placed to address these issues more
efficiently.

4. How will service
delivery be improved?

The new service
delivery model will operate more closely with schools,
giving them a more tailored service that is shaped on
feedback from the sector. It will incorporate changes to the
current service centre model which has, at times, been
problematic for users. The sole focus of the Government
owned company will be on delivering a service that’s
simple, efficient and relevant to users. We will continue to
work closely with the sector to make further
enhancements.

5. What are the financial
details of the settlement package?

The
Ministry and Talent2 have agreed to a full and final
settlement package of $18m-$22m. A $7m cash settlement forms
part of that package. The rest of the settlement is made up
of assets to be transferred; a licence for six years for
Alesco at no cost to the ministry and a discounted rebate
for support and maintenance by Talent2 of the Alesco
software. The settlement amount deals with both the
contractual changes and the ‘day of reckoning’
process.

6. Why did you choose a
company model to operate the service?

A
Government owned company, utilising existing payroll
expertise, will be best placed to support schools to access
and use the payroll system. We felt this was the most
efficient option for minimising any further disruption to
the school payroll system because it can be established
quickly and securely – transitioning the existing
education payroll expertise with a minimum of disruption.
Its sole focus will be on delivering payroll to schools.

7. How will the company be
governed?

The Government company will be
governed by a small board which will report to shareholding
ministers. It is anticipated the company will not be
expected to return a profit to shareholding ministers and
will focus solely on delivering the school payroll through a
contract for service with the Ministry of Education.

The board will be responsible for recruiting a chief
executive, chief operating officer and other roles critical
for the running of the company.

All Talent2 staff currently working
on the delivery of Novopay will be offered the opportunity
to transition with:• Salary and terms and
conditions that are no less favourable•
Comparable duties and responsibilities

Talent2 has
around 90 staff based in Wellington and Christchurch working
in payroll services. It is intended that Talent2 staff will
continue to be located in their current offices.

9. Will this change save taxpayers
money?A more efficient and effective school
payroll service that more adequately meets the needs of its
users will be more cost-effective in the long run. This is
not a silver bullet but it is a significant step towards a
more financially sustainable and enduring payroll service
that impacts significantly less on the taxpayer than the
current model does.

10. How big is the
payroll service in New Zealand?Every fortnight
the education payroll services of the Ministry of Education
pay around 90,000 teachers and support staff in
approximately 2,500 primary and secondary schools around
$170 million in salaries and wages.The New Zealand
education payroll is one of the largest in Australasia and
the largest in this country. There are around 80 different
allowances for teachers, 99 for school principals and 14
collective agreements form the education payroll system.

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